Closed Doors, Open Windows: Tariffs in China and Brazil ...

by Lisa Gibons (Ethanol Producer Magazine) Tariffs in China and Brazil have deeply affected U.S. ethanol exports, but other markets remain, new ones are opening and opportunities still abound for the world’s lowest-cost octane.

Despite a 20 percent tariff rate quota implemented in 2017, Brazil has continued to purchase significant amounts of ethanol from the U.S. It was the top export destination in the 2017-’18 marketing year—September to August—at 464.9 million gallons, according to the U.S. Grains Council. From that standpoint, the figures look great and the TRQ—20 percent on imports above 600,000 liters annually—doesn’t seem to have a significant effect. But with demand figured in, the stats look much different.

“I used to think, ‘How bad could it be?’” says Mike Dwyer, chief economist for the U.S. Grains Council. “But that’s not right. Because in the past year in Brazil, the price of oil went up, domestic consumption soared and we got none of it.” The impact is about $1 billion, he adds. “The fact that we got none of their surging market, to me, is a loss. We could have doubled our exports in the past year.”

The U.S. has missed out on unprecedented surging demand in Brazil, and has been effectively shut out of the Chinese market as a result of standard and retaliatory tariffs amounting to 70 percent. Before the tariffs, the two countries represented enormous export opportunities, but new markets are popping up and U.S. ethanol still is finding homes around the globe, despite its current tariff battles.

Brian Jennings, CEO of the American Coalition for Ethanol, says while figures look good, the U.S. absolutely has missed opportunities in Brazil because of the TRQ. The tariff is in place because sugar producers have been effective in convincing the government to prop them up, he says. There’s no real justification for it, he adds. “The TRQ has to go.”

In China, the tariffs have essentially killed imports directly from the U.S. “Exports to China have dropped off a cliff,” Willis says.

In January, China raised its 5 percent tariff to 30 percent. In April, it increased to 45 percent in the midst of the trade war, and again in July, bringing the total to 70 percent. “We have a tariff in place that is prohibitive to U.S. ethanol working in there, and it’s shut things off,” Willis says.

In February of 2018, China purchased about 33 million gallons of U.S. ethanol, and 19.8 million in March, according to the U.S. Energy Information Administration. Through July, the most recent figures available at press time, the total each month is zero.

Like Brazil, China also has a renewables policy moving into place, aiming for a nationwide E10 blend by 2020. “An enormous demand for ethanol would be created as a result of that,” Jennings says, adding that the figure would be north of 5 billion gallons. While China is trying to boost domestic ethanol production, it can’t meet that ambitious goal without imports, Jennings and Dwyer agree.

The Middle East purchases U.S. ethanol to blend and sell to Africa, he cites, not because of environmental benefits, but because it’s the economical solution. The United Arab Emirates was the third-largest destination in August this year. “Even without a mandate, it just lowers the price,” Dwyer says.

“We’re starting to see markets pop up that are not traditional markets and they’re just doing it because the octane of ethanol, at 115, is the cheapest octane on the planet,” he adds. The benefits are creating opportunities in Indonesia, as well. “This is resonating everywhere. We can lower your bills. With U.S. ethanol, a social benefit comes with a discount.”

Canada also represents a reliable market, sitting on the list as the second-largest export destination at 336.91 million gallons in the 2017-’18 marketing year. It’s overlooked because of that reliability and proximity, Jennings speculates. “Year in, year out, Canada is among the top, sometimes the top, customer for ethanol.”

And the Mexican market is ramping up, as the country has approved gas stations to start selling E10 everywhere except in Mexico City, Monterrey and Guadalajara.

India was the third-largest export destination in the 2017-’18 marketing year, at 165.76 million gallons. It’s one of the top eight gasoline markets in the world, and one of the fastest growing. The country is a top priority for an export market, Willis says. The industry’s six priority export countries are: China, Mexico, Brazil, India, Japan and Canada, he says. They represent 32 percent of global gasoline demand. READ MORE